Why Does My Credit Score Keep Going Down?

A credit score is a numerical assessment of an individual’s creditworthiness, used by lenders to gauge risk. Common scoring models, such as FICO and VantageScore, analyze financial behavior to generate this three-digit number. This score holds substantial importance, influencing the ability to secure loans, interest rates, and even apartment approvals. Credit scores are dynamic and fluctuate based on ongoing financial activities.

Payment history is the most significant factor influencing a credit score. Consistently making on-time payments for all credit obligations, including credit cards and loans, contributes positively. Conversely, any missed or late payments can substantially diminish a score, as they signal a higher risk to lenders.

Credit utilization is the ratio of an individual’s current outstanding credit card balances to their total available credit. Maintaining a lower utilization rate, typically below 30% of available credit, is viewed favorably by scoring models. High balances, even if regularly paid, can negatively impact a score because they suggest a greater reliance on credit.

The length of credit history considers the average age of all credit accounts and the age of the oldest account. A longer credit history, demonstrating consistent and responsible management, typically contributes to a higher score. Opening new accounts can sometimes shorten the average age of accounts, potentially affecting this component temporarily.

Credit mix reflects the diversity of an individual’s credit accounts. Having a healthy combination of different credit types, such as revolving credit (like credit cards) and installment loans (like auto or mortgage loans), can be beneficial. While not as impactful as payment history or utilization, a varied credit mix can show financial versatility.

New credit and hard inquiries are also considered by scoring models. When an individual applies for new credit, a “hard inquiry” is placed on their credit report. Each hard inquiry can temporarily cause a small dip in the score. Opening multiple new accounts within a short timeframe can amplify this effect, suggesting increased financial distress.

Common Actions That Lower Your Score

Making late or missed payments is one of the most impactful actions that can lower a credit score. Even a single payment reported 30, 60, or 90 or more days past its due date can severely damage payment history, which is the most influential factor in credit scoring. The longer a payment remains delinquent, and the more frequently late payments occur, the more significant the negative effect. Such delinquencies remain on a credit report for up to seven years.

Increasing credit card balances or maintaining high utilization ratios significantly impacts a credit score. When an individual uses a large portion of their available credit, their credit utilization ratio rises. For example, if someone has a credit limit of $1,000 and carries a balance of $800, their utilization is 80%, which is considered very high. This elevated ratio suggests a higher risk of financial overextension and can lead to a substantial score decrease.

Opening new credit accounts can also cause a temporary dip in a credit score. Each application results in a hard inquiry on the credit report, which can slightly reduce the score. If several new accounts are opened within a short period, it can shorten the average age of all credit accounts, potentially impacting the “length of credit history” factor. Lenders may view numerous new accounts as an indicator of increased financial risk.

Closing old credit accounts, particularly those with a long history and good standing, can negatively affect a credit score. Closing an account reduces the total amount of available credit, which can immediately increase the credit utilization ratio if other balances remain. It also shortens the average length of a credit history, removing a positive long-term record from the calculation. This action can inadvertently reduce a score by altering two important credit factors.

Serious derogatory marks, such as collection accounts, charge-offs, bankruptcies, or foreclosures, represent significant financial distress and have a profound, long-lasting negative impact on a credit score. A collection account arises when a debt is not paid and is sold to a collection agency, while a charge-off occurs when a creditor writes off a debt as unlikely to be collected. Bankruptcies and foreclosures indicate severe financial hardship and can cause a score to plummet. These entries can remain on a credit report for up to seven or even ten years.

Identity theft or fraud can also lead to an unexpected decline in a credit score. Unauthorized accounts opened in an individual’s name, fraudulent charges on existing accounts, or inquiries from lenders an individual did not contact can appear on a credit report. These erroneous entries can mimic irresponsible financial behavior, such as high utilization or multiple new accounts, causing a score to drop without the individual’s knowledge. Such fraudulent activity requires immediate attention to mitigate its impact.

Accessing and Reviewing Your Credit Information

Identifying reasons for a credit score decline begins with obtaining and reviewing credit reports. Federal law grants consumers a free credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once every 12 months. The official source for these reports is AnnualCreditReport.com. Requesting reports from all three can provide a comprehensive view, as information may vary slightly between them.

Upon receiving credit reports, a thorough review is paramount to pinpoint potential causes for a score drop. Check for any reported late or missed payments, noting dates and severity. Examine high balances on credit accounts, as an increased credit utilization ratio is a common culprit for score decreases. Compare current balances to credit limits on each account.

Look for new accounts or inquiries that seem unfamiliar or unauthorized. Multiple hard inquiries from recent credit applications, especially those not initiated by the individual, can indicate suspicious activity or a recent surge in credit-seeking behavior. Check for any recently closed accounts, as this action can impact available credit and the length of credit history.

Scrutinize reports for any collection accounts, charge-offs, or public records like bankruptcies or foreclosures. These derogatory marks are highly damaging to a credit score and will be clearly noted on the report. Checking for any errors or inaccuracies is a crucial step. Incorrect account statuses, wrong balances, or accounts that do not belong to the individual can negatively impact a score and require dispute with the credit bureau.

Many financial institutions offer free access to credit scores and explanations of the factors influencing them. These services offer immediate insight into recent changes and highlight the primary reasons for a score fluctuation. While these scores may differ slightly from those used by specific lenders, they serve as valuable tools for monitoring credit health and understanding general trends.